Successor Business Question

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    My client had a business (lumber industry) and he ended up accruing a substantial tax debt. The IRS levied his accounts and at that point his business collapsed (it was a sole proprietorship). The wife knew the business and they live in an area where there isn’t a lot of jobs. So she set up a new business to do the work.

    I was hired by the husband and wife to see what could be done. First, the wife set up a new business corporation. I told her that nothing from the old business could be brought into the new unless it was “bought out” from under the IRS liens. We worked out a deal with the local RO to purchase the old assets and the husband was hired on as an employee and paid a fair wage.

    The husband’s remaining assets were basically his house (the wife married him after he built the house so he is sole owner) and his truck and motorcycle. Again, those were purchased out from under the lien.

    We then submitted an offer to settle his tax debts for the equity in the home. The Offer was just rejected. The IRS claims that the business of the wife is a successor business and so what she has worked hard to build up is not included in the offer amount (they added another $300k to it). The IRS included the value of the average cash balance in the business account and a John Deere Skidder acquired by the business from the father-in-law (who also works in the logging industry).

    The wife is upset obviously as she has put a lot of work into this business. She has done all the work to obtain work and make deals with vendors. She even took the business in a new direction when the old way of getting work…well didn’t work. So she is definitely large and in charge. I believe she truly is keeping everything separate but the IRS believes otherwise.

    What can I do to show that the business is truly separate and should not be included in the offer? Any help appreciated. The IRS only gave us 30 days to respond and simultaneously request an appeal.


    Jim Wade

    Eric Green

    Jim, remember, centralized Offer in compromise is worthless – appeal. You always appeal. The Offer specialists once told me a defunct LLC was worth 700,000 of future income. They are, to out it mildly, dip-shits.

    I would advise them not to give up hope and continue soldiering on and appeal. If ultimately the Offer fails you can make him uncollectible or set up a small IA and try and run out the 10 year statute. At the end of the day it is not her issue, though I am sure they would like it done now. I do not see the IRS pursuing her as a successor when its a different form, the assets were all purchased through the RO.


    James Wade


    Thank you. Glad to know that my clients are not heading into the shoals.

    Much appreciated. I will keep the group posted as this could get interesting.


    Jim Wade

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